In the latest edition of Finweek, Sikonathi Mantshantsha reports that Eskom has asked international mergers and acquisitions teams of financial giants JPMorgan and Goldman Sachs to advise it on a ­proposed restructuring.

Eskom blacks out chunk of labour force Fin24.com 18 April 2010

ESKOM is planning a major restructuring, which could involve a partial privatisation and a major shake-up of its labour force.

In the latest edition of Finweek, Sikonathi Mantshantsha reports that Eskom has asked international mergers and acquisitions teams of financial giants JPMorgan and Goldman Sachs to advise it on a ­proposed restructuring.

Finweek has been informed that the company may be split up and certain of its assets privatised, in a similar fashion to that of arms ­utility Denel.

The first business unit apparently on the line is distribution.

Up to half of its labour force may be sold off to new owners as part of the partial privatisation and jobs may be on the line.

The restructuring idea is the brainchild of Eskom’s newest executives, human resources director Bhabhalazi Bulunga and finance ­director Paul O’Flaherty. They ­respectively joined the company from South African Airways and a construction company based in ­Dubai. O’Flaherty confirmed to Finweek that Eskom was considering restructuring.

“Organisations such as Eskom need internal efficiency and productivity. We need to show we can also produce something ourselves – some savings – and not only rely on external funders,” he told the ­magazine.

The plan is to produce some internal savings while the public utility scours the markets to produce the R45 billion funding gap in its capital investment programme. Over the next six months Eskom will produce a plan that seeks to ­reduce overheads to make it a “lean and mean” operation, O’Flaherty said.

Bulunga was head of SAA’s ­human resources team – which ­reduced the national carrier’s staff complement by about 20% in 2008 – credited by the current management as having laid the foundation for its R398 million profit last year.

Eskom approached Bulunga to fill one of three key senior positions that had been vacant for more than a year in its executive committee.

Last year, Rolling Stone columnist Matt Taibbi described Goldman Sachs as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." It turns out that Mr. Taibbi was far too generous in his assessment of the huge investment bank.

Since that time we have learned that Goldman played a central role in helping Greece to hide its government budget deficit from the European Union, the financial markets, and the public at large. Goldman sold complex swaps to Greece in which it paid the Greek government for future revenue streams on items like airport landing fees. This was in effect a loan, but the swap allowed the Greek government to avoid entering the borrowed money on its books as a loan, which would have raised its budget deficit above the euro zone limits. Today of course Greece's financial meltdown is threatening the stability of the euro.

Just last month Goldman was sued for sex discrimination by a former vice-president who claims that she was put on the "

mommy track" after taking a maternity leave. She was fired as she was about to start a second leave. (In fairness to Goldman, Wall Street is still for the most part an all-boys club.)

But the big news is Goldman's indictment for putting together a collaterized debt obligation (CDO) from mortgage-backed securities that were expected to fail and then marketing it to its clients as a good investment. The central allegation is that in early 2007, hedge fund manager John Paulson recognized that the housing bubble was starting to collapse.

This meant that many mortgages would go bad. The subprime mortgages, in which homeowners had little or no real collateral, and were facing resets to higher interest rates, were especially vulnerable. Paulson worked out a deal with Goldman in which he would pick the mortgage-backed securities that were put into the CDO. Paulson would then bet that the CDO would go bad, by taking out credit default swaps (CDS) on the CDO. A credit default swap is effectively an insurance policy where the issuer makes up a loss if an asset goes bad.

Goldman was left with the other side of Paulson's deal, finding suckers to buy this huge piece of junk. It would have been hard to find buyers for this CDO if investors knew that Paulson had deliberately constructed it as a piece of junk to short. Therefore, according to the SEC charges, Goldman concealed Paulson's role in constructing the CDO. Goldman allegedly told investors that the CDO was constructed by neutral parties, rather than letting them know that the assets were picked by a hedge fund manager who was taking a short position.

Of course Paulson won his bet, the CDO he put together really was trash. He made nearly a billion dollars on this particular bet, which involved buying CDS from AIG. AIG was unable to pay off its bet, so Paulson got his money courtesy of the taxpayers when the government stepped in to bailout AIG. Goldman was also buying CDS to bet against the CDOs it was putting together, although it is not clear that it had bet against this particular CDO. In any case, it clearly profited from the issue since Paulson paid Goldman $15 million for its services.

Goldman's conduct in this deal can be framed using an analogy from Phil Angelides, the head of the Financial Crisis Inquiry Commission. Angelides noted that Goldman has bought CDS on the CDOs that it had issued and sold. He compared this to selling a car with bad brakes and then buying insurance on the car. In fact, Goldman effectively cut the brake lines, sold the car to unsuspecting customers and then bought the insurance policy.

In fairness to Goldman, there is no reason to believe that they are any less ethical than any of the other big Wall Street actors, just more effective. The other big banks do the same sorts of deals, even if they aren't able to pull off quite as many scams as Goldman.

All of this should drive home the urgency of both breaking up the big breaks and some serious financial reform. The folks who should have been clamping down on this behavior were all Goldman's friends, starting with then Treasury Secretary Henry Paulson, who had just left his position as Goldman CEO to take the job.

Even if we put in place a better regulatory structure, as long as financial regulation is a conversation between friends, it will not be serious. We need to kill the Goldman vampire squid along with the rest of the species. Only when we have reduced these monsters to a manageable size can be confident that they will be effectively regulated. http://www.ukzn.ac.za/ccs/default.asp?2,40,5,2014www.zcommunications.org

--This article was originally published on April 19, 2010 by the Guardian Unlimited. --------------------------------------------------------------------------------

In the past few months we have learned a number of things about Goldman Sachs. In February, we found out that it played a central role in helping Greece to hide its government budget deficit from the European Union, the financial markets, and the public at large. Goldman sold complex swaps to Greece in which it paid the Greek government for future revenue streams on items like airport landing fees. This was in effect a loan, but the swap allowed the Greek government to avoid entering the borrowed money on its books as a loan, which would have raised its budget deficit above the euro zone limits. Today of course Greece's financial meltdown is threatening the stability of the euro.

Then, just last month, Goldman was sued for sex discrimination by a former vice-president who claims that she was put on the "mommy track" after taking a maternity leave. She was fired as she was about to start a second leave. (In fairness to Goldman, Wall Street is still for the most part an all-boys club.)

But the big news is Goldman's indictment for putting together a collaterised debt obligation (CDO) from mortgage-backed securities that were expected to fail and then marketing it to its clients as a good investment. The central allegation is that in early 2007, hedge fund manager John Paulson recognised that the housing bubble was starting to collapse.

This meant that many mortgages would go bad. The subprime mortgages, in which homeowners had little or no real collateral, and were facing resets to higher interest rates, were especially vulnerable. Paulson worked out a deal with Goldman in which he would pick the mortgage-backed securities that were put into the CDO. Paulson would then bet that the CDO would go bad, by taking out credit default swaps (CDS) on the CDO. A credit default swap is effectively an insurance policy where the issuer makes up a loss if an asset goes bad.

Goldman was left with the other side of Paulson's deal, finding suckers to buy this huge piece of junk. It would have been hard to find buyers for this CDO if investors knew that Paulson had deliberately constructed it as a piece of junk to short. Therefore, according to the SEC charges, Goldman concealed Paulson's role in constructing the CDO. Goldman allegedly told investors that the CDO was constructed by neutral parties, rather than letting them know that the assets were picked by a hedge fund manager who was taking a short position.

Of course Paulson won his bet, the CDO he put together really was trash. He made nearly $1bn on this particular bet, which involved buying CDS from an insurer, which was backed up by a major European bank. This deal helped to transmit the fallout from the housing crash to Europe, leading to financial crisis there.

In similar deals constructed by Goldman, the insurer was AIG. Of course AIG was unable to pay off its side of the bet, so Paulson or other short speculators on Goldman's CDOs got their money courtesy of the taxpayers, when the government stepped in to bail out AIG. Goldman was also buying CDS to bet against the CDOs it was putting together, although it is not clear that it had bet against this particular CDO. In any case, it clearly profited from the issue since Paulson paid Goldman $15m for its services.

Goldman's conduct in this deal can be framed using an analogy from Phil Angelides, the head of the Financial Crisis Inquiry Commission. Angelides noted that Goldman has bought CDS on the CDOs that it had issued and sold. He compared this to selling a car with bad brakes and then buying insurance on the car. In fact, it looks like Goldman effectively cut the brake lines, sold the car to unsuspecting customers, and then bought the insurance policy.

In fairness to Goldman, there is no reason to believe that they are any less ethical than any of the other big Wall Street actors, just more effective.

All of this should drive home the urgency of both breaking up the big banks and some serious financial reform. The folks who should have been clamping down on this behaviour included then treasury secretary Henry Paulson, who had just left his position as Goldman CEO to take the job.

Even if we put in place a better regulatory structure, as long as financial regulation is just a conversation between friends, it will not be serious. Last year, Rolling Stone columnist Matt Taibbi described Goldman Sachs as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money". It turns out that Mr Taibbi was far too generous in his assessment of the huge investment bank. We need to kill the Goldman vampire squid along with the rest of the species, only when we have reduced these monsters to a manageable size can we be confident that they will be effectively regulated